PINSTRIPE
Forgive me for returning to the same topic for a second time but, the political debate of the last fortnight has made it clear we are collectively determined to miss the greatest opportunity in my lifetime to turn Scotland into a wealthier, economically vibrant and fairer country. The issue is Income Tax and our obsession with rates rather than the amount it raises.
We look with envy at the Corporation Tax receipts which Ireland has. What they did to get to this position was simple. After they joined the EU they looked around to see what tax other countries were charging at a high rate, what would make economic activity move and what tax they didn’t get much of. The answer was Corporation Tax. Most of the larger countries in the EU in the 1970’s charged high rates (several over 50%) and, crucially, Ireland’s Corporation Tax revenue was low. They didn’t have much to lose when they cut the rate to 10% and the other countries with large Corporation Tax receipts couldn’t follow them down because they had a lot to lose. The result? - Ireland made a packet allowing it to transform its public finances and the economic lives of its people.
Scotland has the same opportunity, not with Corporation Tax because that opportunity has gone as England heads towards a 17% rate. With Income Tax, however, the opportunity is real and the time to grasp it is now. The Scottish Government cannot blame Westminster on this one - it now has the power to set Income Tax rates. With unerring stupidity the Labour Party want to raise Income Tax rates which, by reducing overall tax revenues, would hurt the very people they say they want to help. Nicola Sturgeon, to her very great credit, has taken a lot of punches because she has listened to advice that higher rates mean lower revenue and has concluded that the top rate should stay where it is - her instinct though is that it should go up and only logic holds her back.
If Scotland significantly reduced Income Tax rates there would be an explosion of dynamism in our country, generating wealth, jobs and more taxes which would pay for more public services.
We have less than 20,000 people who earn more than £150,000. We should set a target to have 50,000 with five years. We could do it by lowering significantly the top rate of Income Tax so that high earners are drawn to Scotland. England could not copy us because they already have the high earners so reducing rates risks reducing their revenue. For Scotland it is a no brainer, lower Income Tax Rates = higher Income Tax take.
What of fairness? The consensus is that it is fairer people who earn more money should pay more tax. They already do - under current UK income tax rules in 2016/17 a person who earns £25,000 pays £2,800 in Income Tax and a person who earns £125,000 pays £43,600 - that’s nearly 16 times more. Where is the unfairness there? Should the higher earner pay even more? - that doesn’t seem fair to me. In the modern mobile world people with the ability to earn a lot of money have a choice of where they live, work and pay taxes. This isn’t tax avoidance it is just exercising their freedom in the best interests of themselves and their families. We need more of these people and we have a golden opportunity to attract them right now.
Courage anybody?
Pinstripe is a senior member of Scotland's financial services community.
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